LB I'd have to agree. I remember discussing the need for RTC pt II with a few colleagues in early 08 (note: we were all busted credit guys) and it took another 10 months for something to happen. It doesn't help that these issues are across national boundaries. The bounce has been nice (but small) but its hard to get and stay behind it here.

This bounce doesn't seem like it has much legs in it...actually, most of the bounces this year haven't had much steam behind them...very un-2009!

I've been trying to persuade my boss to sell some of his junk (think crappy small cap commodity/China related plays) into this bounce but with little luck....ho hum. At least i can start looking for a new job now, though...hurrah!

here it is hitting the tapes, I'll translate for those not familiar with multi-country bailouts, its a bit like paying the bar tab in university:

"Drinkers have agreed in principal that bar tab should be paid. Details such as who drank what, who owes who a pint from last night and more importantly, on which basis people will pay remain to be determined."

As usual, Macro Man leaves for a few days and Big event happen. Personally, I do not believe in Greece solving this situation in a way that will benefit euro as a currency. Who said the old goodie, a bit forgotten these days - buy the rumor sell the news?!

Gary, true, it's not clear Germany can bailout all these countries, hence Stiglitz says Greece shouldn't "close the door" on an IMF bailout. EU/ECB apparatchiks say that would be a "humiliation."

California for all its faults has a comparatively straightforward calculus, the state is in D column, and home to Madame Pelosi. Thus a prime candidate for "recapitalization" or whatever the euphemism du jour may be.

Pelosi is probably the most hated woman in the USA right now. After the bribe given to Nebraska in the health fiasco, and this being an election year -- you have to ask if any member of Congress is going to risk their career to back the most hated woman in the country

Anyway, if California gets a bailout-- how could Obama say no to Florida, New Jersey, Michigan, Arizona, ...? The country is already facing $1.5 trillion deficits; a bailout of all the states means Geither's assurances on the US's AAA rating get refuted even faster than they otherwise will.

What are the odds Obama wants to go down in history as the President who lost the US's AAA rating?

Either Obama learns to say "no mas" or his entire agenda goes down in flames.

Regardless of her lack of popularity, I would argue that neutralizing Pelosi is in Obama's political interest (in a Machavelian sort of way)

There seems to be some confusion today. So, is no Greek bailout good or bad for the € ? If it is perceived to be good, then € may eventually join the USD and JPY as a "safe haven" and we may see the € and risk assets begin to decouple.

EUR:JPY has been tightly correlated with equities for a long time, but correlations, as someone observed here a while back, do not last for ever.

LB -- I have been wondering the same thing... I think Greece is dead to the EU, the only real issue is how to extricate the EU survivors (Germany plus ???) from the obvious casualties

The EU treaty has no clauses for booting a member country -- but it also has no clauses that require members to bail each other out. That was inserted at Germany's demand -- another reason to believe Wall Street's hoped for bailout isn't coming

The Euro might strengthen **if** there is a clear path to jettison the spendthrift countries -- but that essentially means Europe will revert back to separate currencies.

Germany, and its economic "satellites" (I don't know what else to call them), might stay unified under a "Euro" or equally likely a resurrected Deutche Mark.

The rest of the EU isn't unified politically or economically -- only on paper. There is really nothing holding it together but a treaty (a piece of paper) that most of the population never voted on.

German investments look attractive to me, and perhaps some things in Germany's economic satellites / neighbors.

But the EU is just a fiction conjured up by some disconnected politicians in Brussels

Gary, you seem to view Obama as a sort of vapid politician driven by short term opportunism, sort of following wherever the winds of expediency may take him.

I see him as a political extremist, the variety who frequented "socialist conferences" (phrase from his autobiography) in his youth and continues to maintain relations with hard leftists like self identified Marxist-Leninist terrorist Bill Ayers.

If I am correct, then he, and more importantly his handlers, would be more than happy to see the whole country go down in flames.

I don't think most finance types understand just how traumatized Germany was by the inflation / bad currency of the 1920s. Its burned deeply into the German psyche

Germans gave up their Deutchemark very reluctantly, and only after extra protections were added to the Maastricht Treaty to PREVENT exactly the sort of Weirmar Republic like behavior that many EU members (not just Greece) practice

I don't think Obama is really the President right now -- sure he won the election and *officially* is the President, but not really. He doesn't speak for the Democratic party -- Pelosi and Reid have openly and publicly defied him. When confronted about her closed door corrupt-a-thons versus Obama's campaign promise to make government more open, Pelosi said (on TV camera where Obama would see it) "Yeah, well the President promised a lot of things".

The Democratic party has absolutely nothing holding it together other than a shared hatred of George W Bush -- who no longer matters. There are many many factions within the party, each competing for influence and control.

I have no idea if Obama would be better or worse than Pelosi/Reid/Franks -- but right now Obama might as well be Vice President in a Senate that has no tie votes to break.

Obama must take control of the Democratic party in order to be President -- and that means he must neutralize the extremists in Congress

I doubt Rahm Emanuel would shed a tear, or even break stride, at throwing Pelosi under the bus. He has hitched his ride to Obama, for better or ofr worse.

No matter which party is in Congress or the White House -- they can't save California anymore than Germany could save Greece. Spending within their means is the only way CA/Greece can be viable-- and we all know it.

What is the speculation? Germany provides some loans to Greece, while demanding that Greece cuts its deficit, assuming this is somehow enforceable so that Greece doesn't inevitably come back for more in 6 months or a year. OK, so your loans to Greece are safe, but I can't see why this solution, if applied to all the indebted governments, is positive for the Euro or risk assets in general. Cutting government spending may lead to recession and more deflationary pressures.

This is absurd. Somebody on Wall Street needs to learn about a thing called Due Diligence. Or maybe they should just learn to read.

Article 104 of the Maastricht Treaty explicitly forbids a bailout of any member nation. In writing, in black and white, in multiple languages. Try reading it sometime.

Article 21 of the Statute establishing the European Central Bank also strictly bans the ECB from bailing out any member nation.

In other words, there is no legal basis by which the EU can bail out Greece. Either Greece fails, or the rule of law fails -- the union is done and over with either way.

And not incidentally, German legislators have flat out stated on that television thingy that Wall Street never pays attention to that “If Greece gets aid, it will only happen under strict conditions and if the Greek government undertakes far-reaching state reforms.”

In other words, any aid will come with strings attached -- strings that will effectively crush the Greek government and the Greek economy (at least in the short term).

Germany will then have effectively staged a coup over the entire EU -- annexing its neighbors by economic fiat instead of with Panzer tanks.

So even if the EU opts to ignore its own laws -- the EU becomes the German Union

What could possibly go wrong :-) Well, in theory they would be nice exchange traded futures-style contracts with margin calls. In practice, when the crisis arrived it would gap 4500 points and one side of the trade would be bankrupted. That's my guess.

1) As was pointed out, the EU treaties expressly forbid bailouts. If laws/treaties are obeyed only when politically convenient, then they aren't really laws at all.

2) Its wrong to ask if Germany will bail out Greece alone; the question is whether they bail out Greece, Italy, Spain, Portugal (and others). Greece is just the first one. Germany probably bail out just Greece, but in aggregate the basket countries are too big for Germany to bail out

3) If Germany bails out these basket cases without any restrictions, it ends up like the DaimlerBenz bailout of Chrysler... Daimler almost collapsed. A German bailout without restrictions likely means Germany becomes a basket case itself.

4) If Germany places spending / debt repayment restrictions on its bailout loans, the other countries would be essentially surrendering their sovereignty to Berlin. Power of the purse is the only thing that really matters (ask the House of Windsor what happened when they lost power of the purse to the UK Parliment). I assume I don't have to give odds of these countries surrendering their sovereignty to Berlin.

Without full loss of sovereignty, whatever restrictions Berlin places are as enforceable as the ones that already exist in the EU treaties -- meaning they are not enforceable at all. Greece rather flagrantly violated almost all the EU membership terms.

********Germany cannot even consider loans without effectively nullifying the foundation of the entire EU.

If Germany decides to nullify the EU treaties, Germany cannot give loans without restrictions unless Germany wants to be a basket case itself.

They can't realistically enforce restrictions unless the other countries give up their sovereignty (fat chance).

So Germany really doesn't have any good choices here. The choice that is least bad is: let the basket cases fend for themselves. Use Germany's resources to protect / bailout German banks and companies, and where possible to protect/bailout German "satellite" economies (Poland and Netherlands come to mind).

France and the UK are very weak economically and will probably have to scale back international commitments regardless of how this all settles out. Germany can probably retain (smaller) trade relationships with both.

All the scenarios mentioned involve the end of the EU -- either formally (violation of treaties) or informally (majority of members are bankrupt).

The "let them fend for themselves" scenario, while involving substantial pain, leaves Germany intact as well as its satellite economies. Some European trade remains (albeit smaller).

The bailout scenarios involve Germany getting dragged down and made into Europe's economic slave -- Germany does all the work, the rest of Europe gets all the benefit (loan restrictions are not enforceable without loss of sovereignty)

In the end, either bunds and the Euro become worthless under bailout scenarios ...

...or Germany splits the EU up (formally or informally). The Euro splits up into a Deutche Mark and various toxic waste. Perhaps Germany calls their currency the Deutche Mark, perhaps they retain the Euro name -- but they must distinquish it from the toxic waste "euros" of Greece, Spain, etc.

Hyperinflation in Germany and the Weimar Republic go back almost a hundred years. Any references to those historical events today do qualify as urban legend or simple myth.Clearly, it is not connected since there is no connection or relationship whatsoever with the bail-out of the PIIGS.

a smart move would be for Germany/France to offer (for a price) guarantees on the SPANISH Govt Debt. They would show that they are doing something, it would prevent dislocation of the eurozone (only the Greek, and maybe the Portuguese would be let to themselves) and not encourage moral hazard (Essentially, the Spanish Guarantee would be a "reward" for the "virtuous" government finance they had pre-2007. That would give Spain the firepower to bail-out its Banks if needs be (developer loans etc...). What do you think, Long Greek CDS, Short Spain CDS, good trade ?

Assume first we don't have to give odds of these countries surrendering their “sovereignty” to the “sovereign” CDS flippsters in search of their LAST fool.

Then we can congratulate flippsters for this latest “DGUF show”, off sprung by flippin’ Greek in front of California’s “sovereign” DS, then flippin’ corresponding “sovereign” rating agencies into flippin’ their “sovereign” grades, after having their fun with Dubai and before flippin’ the Spanish type too.

It would appear that Voldy did not enjoy all these sovereign CDS flippin’ games too much, given the value that’s added; though German exporters (and tax evaders all @ the same time) and Treasuries’ pushers found themselves enjoying the side-effects. Temporarily.

’Tis true that running a German trade surplus would require, gee, Greece plus the lot - to run corresponding deficits of the same kind, no? Then flip-in some German banks, adding their value through credit to “sovereigns”.

Well then. Lots of jawbones being stretched, no?

Good luck to all “sovereign” CDS holders - credit traders adding their value, no doubt. Was said, that some were off sprung by some of them Greek banks. Looking for bailout.

ahh back from my travels dodging snow by the skin of my chin--my orange county point had to do with the currency (euro)--and i still don't think greek troubles should equal euro troubles in any fundemental way--doesn't mean you can't make money but its like buying CDSs you got to hope there is a great fool to buy you out at a higher price cuase even in greece the chance of trigger full default clause is small--damm lawyers--and if you want to talk funding concerns well the buck don't look too good either

1. Does it really matter what Greek politicians agree to? If there isn't popular support for austerity, then the Greek and other PIIGS politicians will ultimately be unable to deliver on their promises, and the whole thing collapses.

2. There is probably a distinction between the long term and short term outcomes, especially from a market impact perspective. It is possible that Germany will organize some kind of bail out of Greece as an attempt to create a 'firewall" that prevents further contagion. It is probably much cheaper to bail Greece than Spain. If the contagion can be halted and momentum reversed, then the bailout of the other PIIGS could be avoided. It would be tantamount to Germany rolling the dice on a long shot solution.

3. I haven't read the treaties, but if there is the political will, it is always possible to change laws. Laws are supposed to codify prevailing norms and attitudes. If those norms have changed since the conclusion of the various treaties and statutes, then their interpretation will be stretched or they will be changed to permit whatever is required.

In other words, a bailout won't work without austerity measures -- which are unlikely to be enforceable and almost certainly will not have popular support.

2) I see your point that there are long versus short term implications to this -- but they mostly exist in the minds of non-European traders hoping (wishing) to have their positions bailed out. Any Greek bailout sets a precedent... how does Germany pick and choose which EU members get a bailout? And in doing so, isn't Germany effectively deciding that some EU members are more expendable than others? What kind of union is that?

3) Of course the treaty can be changed -- we can all sit around and argue what the meaning of "is" is too. So what?

The underlying problems aren't solved by lawyer like word-smithing. Either the rule of law counts or it doesn't. If you change the rules whenever they are inconvenient, then why have them in the first place?

These rules aren't being consider for change because they no longer make sense -- they are being changed because some membership doesn't want to live within its means

There is no legal change to fix that basic problem. Any country might have have a temporary economic setback and require aid -- but lets be honest with ourselves here. Greece's spendthrift ways are not a temporary phenomenon.

Germany will be providing "temporary" aid for as long as the EU lasts -- and even in the short term, it won't be just Greece.

Why wouldn't the UK join up with the EU, spend as much as they like, and send the bill to Germany?

Heck, why not have the USA join the EU, spend recklessly, and send Germany the bill?

We already tried a situation where Germany paid reparations to the rest of Europe -- and lets just say that ended really badly.

So yes, the laws of the EU can be changed, but that won't solve the underlying problems that caused this mess.

The stable currency articles in the EU treaties were put there to avoid free loader and moral hazard issues -- not as a linguistic inconvenience for lawyers to argue about

@Gary: Agree with everything you said in terms of logic/principle/etc but...

1). As a Brit (who was delighted we didn't join the Euro) I remember the argument (from the right) back in the day that we shouldn't join the euro because it was just another way of Germany trying to take over Europe! The Euro's a political creation, driven by the Germans & French. They're not going to abandon it easily.

2). Politicians are morons & timing works in Greece's favour. In much the same way that Bush/Obama bailed out Wall Street and then (at least in Obama's case) expected to be able to get some reform later and failed. The Greeks/Spanish/etc will promise the world get their cash (before they hit the wall), the Germans will get to sound austere and nothing of great import will happen. The can will be kicked down the road...

3). The Maastricht Treaty was already ignored/fudged to let the countries into the euro (Deficit less than 3% rule and Debt/GDP <60% rule were ignored) and I'm sure will be ignored/fudged to keep them there..

Agreed with Our Man on the can kicking. Laws and Treaties don't say anything about can kicking.

Greece can't go it alone and reissue drachmas. That way lies Weimar and Zimbabwe, and they know it. It's one thing for the UK to print, but quite another for the smaller economies that would lose foreign investment. Austerity dead ahead. The Irish have already accepted this fact. It will be a long hot summer in Athens, and other EU capitals.

Just a brief point to add regarding what @PPM has said about a "firewall" to protect Spain and their brethren.

If you remember back to the Lehman aftermath, the purchase of Merrill Lynch did not reduce pressure on the remaining investment banks, but intensified it. MS and GS were forced to become banks and receive access to Fed funding in order to survive.

If Greece is bailed out and no provisions are put in place to assist other countries (Germany can't afford to bail everyone out) I can see market focus shifting to the next weakest link.

1) Yes I agree that some German politicians may want to use the Euro to annex all of Europe, but they can't do so unless the other countries turn over power of the purse (ie give up sovereignty.

This is the world's worst kept "secret" -- Germany will be dragged under by the sum of all the basket cases, unless they get subordination (austerity by any other name will still smell like loss of sovereignty). There is no scenario where this gets popular support -- hence no scenario where a bailout works

2) Politicians are morons, but the individual citizens in Germany and Greece less so. Germans know the loans will not be paid back and the bailouts are not going to be "temporary" or one-off events. Greeks know the austerity measures mean loss of sovereignty. Both the Germans and the Greeks vote

Whatever Berlin / Athens cooks up short term, the voters will undo at the next election

3) Yes, the treaties were ignored at the start (although it turns out Greece circumvented the rules far more than was originally realized) -- and look where it got them. The politicians already had there way once (none of the treaties passed a popular vote in any of the "anchor" countries)

Fool us once, shame on you. Try to fool the voters twice, you will face early elections. The fundamental problems of Germany paying never ending reparations to most of Europe and/or Greece/Spain/Italy/Portugal losing sovereignty are not a secret and can't be denied any longer

As LB alludes, they might kick the can down the road a few months, but Germany can't bail out all the basket cases in Europe even if Merkel could get popular support -- which isn't going to happen.

There is no way to "fence off" just Spain or just Greece or whichever country.

The bailout "solution" requires popular support from either Germany or Greece that will never happen.

Best case for bailout hopefuls -- Germany is forced to revisit the "tough love" question in a few months when the next basket case fails.

Whether its this month or this summer -- Germany must cut the cord and let the basket cases fail / leave the Euro ... or those basket cases must surrender sovereignty

History shows that printing new currency -- LOTS of new currency -- is hardly a stumbling block for Greece or the other basket cases.

I doubt Greece becomes Weimar Republic or Zimbabwe, but it "reversion to the mean" seems like a very reasonable scenario to me. I remember in the 1990s (pre Euro) that a t-shirt in Italy cost several thousand Lira, and it took a wheel barrel full of Drachma -- both countries issued new currencies every couple decades

It is confusing. There are indeed many basket cases and baskets of basket cases` currencies that measure the strength of the basket case currency which is again part of basket that measures the strength of the other basket case currencies. All taking the same /one/ way. FX was supposed/intended to play the »efficient« part in this basket floating world.

IMO, it failed the task spectacularly, currently reduced to a hostage of the Flipmode squid/s (whose analyst is currently apologising for misunderstandings due to intervention of their previously advised client).

It's conceivable that even a EU guarantee behind Greece won't solve their problem.These politicians seem to consistently overlook ,dare I say it ,people.If the Greek people want to keep on repeating today's action with enough frequency then Greek revenues have only one way to go and there is not a blessed thing EU politicians can do about that.

Anon 9.58the problem with that statement is it presumes there are other major currencies anywhere in the world with enough liquity to take their place. In my opinion there isn't that's why the majors are going to chop against each other in wide ranges probably for years to come as each in turn pursues a beggar thy neighbour policy.

OK President Obama -- we have now had a really nasty snowstorm up here in the NYC area. The news media is calling it a blizzard. I actually had to put down my slurpy and my TV remote and shovel my driveway today!

I want my federal assistance, my three days off from work (with pay, paid for by Federal bureaucrats since they got paid by us taxpayers the last three days)

I also expect my bailout check. $15 billion is the going rate that your inept Treasury Secretary paid his cronies at Goldman Sachs. I actually did my job correctly, didn't screw up the financial system, and never made any false claims about doing "God's work" -- none the less I don't expect to be treated any better than your inept political contributors.

Pay me my $15 billion, my federal assistance for suffering a blizzard, and by three days off from work -- and we will call it even

"that's why the majors are going to chop against each other in wide ranges probably for years to come"

Exactly correct. Thereby driving carry trades and leveraged commodity and EM "investments" up and down to keep traders busy and make boofoo profits, thereby providing much needed banker bonii until the end of time.